2 leisure stocks weather Cyclone Debbie, Dreamworld fallout

Glenn Freeman  |  02/05/2017Text size  Decrease  Increase  |  

Glenn Freeman: I'm Glenn Freeman from Morningstar and I'm joined today by Brian Han, Morningstar Senior Equity Analyst, covering telco, media and leisure.

Brian thanks for joining us today.

Brian Han: Pleasure.

Freeman: Now Brian, first off: Ardent Leisure has been in the headlines again, this time with a change of CEO. Does this play into Morningstar's outlook for the company?

Han: The first thing to say is the change in management does not impact our stewardship rating which remains standard.

But I do believe that Mr Simon Kelly, the new CEO designate, has the credentials to lead the company forward. He has vast experience especially in areas of financial management and restructuring. And we will be particularly interested in his views on Ardent Leisure's expansion plans in the US with Main Event, which we've consistently considered to be too aggressive, especially in what is a very competitive family entertainment industry.

Freeman: Another leisure company Village Roadshow which operates three theme parks on the Gold Coast issued its second profit warning for the year earlier this week. What was this about and does this affect your outlook for the company.

Han: Village Roadshow's theme parks on the Gold Coast are still suffering collateral impact from the Dreamworld tragedy which happened late last year.

Now, Village does not own Dreamworld, but obviously patron sentiment towards these rides are still quite damn shaky at the moment and therefore Village Roadshow theme parks are getting impacted right now.

Also, as you know a month ago we had Cyclone Debbie sweeping through Queensland and that also pushed down attendances quite significantly. Now these one-off issues really don’t impact their long term based fair value estimate.

But what it does is actually has an impact on near-term dividends. Now Village Roadshow in the first half actually suspended their dividends because their debt load is too high. And I believe there were some investors in the market hoping that dividends maybe reinstated in the second half, but I think the reason trading up they basically dashed all hopes of that.

In our opinion Village Roadshow needs to sell some non-core assets to reduce debt, before it even thinks about paying dividends again.

Freeman: And Brian, tourism plays a big part in the success of these companies. How important are Australia's international visitor numbers?

Han: They are important in the sense that they do impact the theme park operations of these two companies. But the first thing to say is when it comes to these theme parks on the Gold Coast domestic visitors are still, they still make up the bulk of the attendances between 60 per cent to 80 per cent.

Having said that, theme parks are essentially fixed cost businesses. So, any increase in international visitors that can get through the gate has a very big favorable impact on earnings.

So, in that way international visitors and the continuing increase has a very good direct impact on earnings of these theme parks.

Freeman: And just lastly more broadly speaking what's your outlook for Australia's tourism and leisure sector over the medium term.

Han: I think people will always go out, spend money and enjoy themselves and in that way I think the leisure sector will always be there.

Having said that, it is a very cyclical, very volatile industry and as you know there are no shortage of options when it comes to leisure activities in the market. And this is the reason why we have no economic moat ratings on any of the leisure companies operating in this space.

Because whenever returns are high you can be sure that there will be competition coming in to compete away those high returns. And as the theme park tragedy last year shows you, it can be very volatile depending on one off instances like that and it can take time to recover.

So, in that way, yes, leisure sector will always be there, people will always spend money to enjoy themselves. But it is a very cyclical and volatile sector.

Freeman: Brian, thanks very much for your time today.

Han: Thanks Glenn.

Freeman: I'm Glenn Freeman from Morningstar. And thanks for watching.

Video Archive...

Don’t overdo benchmark consideration
27/06/2017  --
Factor-based investing using ETFs
26/06/2017  Investors should consider style-exposures--such as value, defensive or yield-- they would like in their portfolios, explains Jonathan Shead, head of portfolio strategists – Asia Pacific, State Street Global Advisors
Volatility plays to active manager strengths
--  The climate of political volatility in the US holds important implications for investors and the funds they invest in, particularly around Donald Trump's ability to pass legislation through Congress, says Pimco's Libby Cantrill.
Is the FTSE 100 Facing Another Market Crash?
16/06/2017  Ten years on from the pre-crisis FTSE 100 high, Morningstar UK's Emma Wall examines how UK stocks have fared
How to guard against retirement threats
16/06/2017  As retirement approaches, even the best-laid plans can go awry, as Tim Steffen tells Christine Benz, Morningstar US.
PIMCO Global Credit Fund
07/06/2017  The PIMCO Global Credit strategy receives a Morningstar Analyst Rating of Silver due to its sizeable and highly capable credit research team.
PIMCO Income Fund
07/06/2017  Morningstar's Tim Wong looks at the strengths and competitive advantages of this Silver-rated strategy.
3 pockets of opportunity in fixed income
07/06/2017  The head of PIMCO Australia portfolio management explains his views on active management in fixed income and outlines where he sees most value in this space.
Trump administration biggest macro threat for investors
05/06/2017  Even as European political volatility subsides, the US Government remains a considerable threat to financial markets, says Colleen Barbeau, director of equity portfolio management, Franklin Templeton.
Antipodes Global Fund: Class P
01/06/2017  Antipodes constructs this portfolio based on three major objectives--capital preservation, inclusion of attractively priced businesses, and investment resilience.
Investors Mutual WS Future Leaders Fund
01/06/2017  Investors Mutual Future Leaders is a capable strategy focused on investing in Australian companies outside the top 50.
Why the time is right to invest in India
25/05/2017  Indian stocks rallied after the appointment of Narendra Modi as Prime Minister--but then subsequently fell. UK-based investment manager Jonathan Schiessl says now is the time to buy.
When should you pay active fund fees?
23/05/2017  When is it worth paying higher fund fees for active fund management? The single most important factor effecting a fund's relative performance is its price.
Budget 2017: bank levy a potential 4pc hit to big five profits, dividends
10/05/2017  If unable to pass on costs associated with the new levy proposed in the Budget, bank profits and dividends could dive 4 to 5 per cent, in a significant hit to shareholders and customers.
Why PIMCO Australian Bond is a Gold-rated strategy
10/05/2017  Tim Wong explains why PIMCO Australian Bond is Morningstar's most highly rated fixed-interest strategy in this market.
2 leisure stocks weather Cyclone Debbie, Dreamworld fallout
02/05/2017  These two companies with large theme park operations have faced significant challenges in recent times. Morningstar senior equity analyst Brian Han explains how they've fared.
Schroders stays hot on commodities, cooler on tech and defensives
01/05/2017  Long-term investors in Australian shares will continue to find value, but the time for risk-taking on more speculative plays has passed, says Martin Conlon, Schroders’ head of Australian equities
Introducing star ratings to Morningstar Australasia equity research
27/04/2017  What investors can expect from Morningstar's roll-out of its star rating methodology across Australian and New Zealand stocks, as explained by the regional director of equity research, Adam Fleck.
French elections: Macron versus Le Pen
26/04/2017  Following the first round of the French Presidential elections, the 7 May vote is now between Emmanuel Macron and Marine Le Pen. What does it mean for investors?
How climate change will impact your portfolio
20/04/2017  Ignore climate change at your portfolio's peril, says Jeremy Grantham, founder of asset manager GMO.